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Rational speculative bubbles and duration dependence in exchange rates: an analysis of five currencies

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  • Benjamas Jirasakuldech
  • Riza Emekter
  • Peter Went

Abstract

We investigate the presence of rational speculative bubbles in the exchange rates of the British pound, the Canadian dollar, the Danish krone, the Japanese yen and the South African rand against the US dollar. The unit root test shows that the exchange rates and fundamental variables - money supply, income and interest rates - are integrated of order one, indicating no rational speculative bubbles. Further, the cointegration test indicates evidence of a long-run relationship between the exchange rate series and the fundamental variables, corroborating that no speculative bubble is present. The results of the non-parametric duration dependence test suggest that rational expectations bubbles do not affect these exchange rates.

Suggested Citation

  • Benjamas Jirasakuldech & Riza Emekter & Peter Went, 2006. "Rational speculative bubbles and duration dependence in exchange rates: an analysis of five currencies," Applied Financial Economics, Taylor & Francis Journals, vol. 16(3), pages 233-243.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:3:p:233-243
    DOI: 10.1080/09603100500378997
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    Cited by:

    1. J. Cunado & L. A. Gil-Alana & F. Perez de Gracia, 2007. "Testing for stock market bubbles using nonlinear models and fractional integration," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1313-1321.
    2. Hu, Yang & Oxley, Les, 2017. "Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies," Economic Modelling, Elsevier, vol. 64(C), pages 419-442.
    3. Benjamas Jirasakuldech & Riza Emekter & Thuy Bui, 2023. "Non-linear structures, chaos, and bubbles in U.S. regional housing markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(1), pages 63-93, March.
    4. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.
    5. Riza Emekter & Benjamas Jirasakuldech & Peter Went, 2012. "Rational speculative bubbles and commodities markets: application of duration dependence test," Applied Financial Economics, Taylor & Francis Journals, vol. 22(7), pages 581-596, April.

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